February PMI Figures Positive for Brazilian Economy

The PMI stayed above 50 in February, advancing 2.9% m/m seasonally adjusted (SA) to 54.6, after growing 1.3% m/m SA in January and 5% m/m SA in December. The index is 43% above the low of 38.1 reached in January 2009, but 5.5% below the high of 57.8 in January 2010. Solid domestic demand rather than external demand generated strong growth in new orders, pushing companies to increase output and hire workers. Inventories decreased rapidly, while average input costs increased at a marked pace.

In RGE’s view, February’s PMI is positive news as it suggests that the expected deceleration in economic activity this quarter might not be as severe as other indicators suggest. Moreover, the data suggest that domestic absorption continues to sustain industrial growth and overall economic activity, while external demand is less supportive—perhaps reflecting an overvalued currency. Needless to say, we highlight that the acceleration in input and output prices is worrisome.